Legal Definitions - dissipation

In legal terms, dissipation refers to the improper or unfair use of an asset, often by one party, that reduces its value or availability for equitable division among all rightful claimants. This typically occurs when a legal action is pending or imminent, such as a business dissolution or the distribution of an estate, and one party acts to diminish shared resources for their personal benefit or for an otherwise unjustifiable purpose.

Here are some examples to illustrate this concept:

• Business Partnership Dissolution: Imagine two business partners, Sarah and Tom, who have decided to dissolve their company and divide its assets. Knowing the dissolution is approaching, Tom secretly transfers a large sum from the company's operating account into his personal bank account to pay for a lavish, non-business-related vacation. He does this without Sarah's knowledge or consent, and the funds were not part of any agreed-upon distribution.

  This is an example of dissipation because Tom improperly used a shared business asset for his exclusive personal gain, thereby reducing the total value of assets available for an equitable division between both partners during the dissolution process.

• Misuse of Trust Funds: Consider a situation where a trustee, appointed to manage a trust fund for a young adult beneficiary, learns that the beneficiary will soon turn 21 and gain full control of the funds. In the months leading up to this, the trustee uses a significant portion of the trust's principal to make extensive, unnecessary renovations to their own private residence, falsely claiming these were "administrative expenses" for the trust.

  This constitutes dissipation because the trustee, who has a fiduciary duty to preserve the trust's assets for the beneficiary, unfairly diverted those assets for their personal benefit, diminishing the inheritance the young adult was legally entitled to receive.

• Jointly Owned Property: Suppose two siblings, Maria and David, jointly own a rental property that they plan to sell and split the proceeds equally. Before the sale is finalized, David, without consulting Maria, uses all the accumulated rental income (which should be shared) to pay off his personal, long-standing credit card debt. He does not contribute any of these funds to property maintenance or a joint savings account.

  This is an instance of dissipation because David improperly diverted shared income from a joint asset for his exclusive personal use, thereby reducing the total amount of funds that should have been equitably divided between him and Maria from their shared property.